Archives: December, 2009

The Consequences of Regulation

The city of Alexandria, Virginia, passed a law in 2005 to require that each cab respond to two dispatch calls every day. WAMU reports on the results:

Says [driver Chaudhry] Ahmed, “If they’re going to do this kind of stuff, then for sure we’ll be out of business and standing in line at the unemployment office.”

Alexandria created the rule back in 2005 to prevent taxi drivers from spending all their time picking up fares at hotels and the airport. Since that time, one company has closed because it couldn’t meet the requirement and another has been put on probation. But Transportation Chief Bob Garback says the city doesn’t want to shut anybody down: “Our objective is just to make sure that we have reasonable taxi service here. Shutting companies down doesn’t really serve that purpose.”

Alexandria didn’t want to shut companies down. Someone just had an idea and decided to codify it, without much thought as to where cab drivers actually find passengers, how much it costs to respond to dispatches, and so on.

No doubt most regulators and legislators don’t want to shut companies down. But special interests and activists and irate citizens press their ideas, and policymakers respond. It always seems like a good idea at the time: guarantee every worker a minimum wage, put a cap on rising rents, or make sure that banks lend money to borrowers who can’t really afford a house. And then when low-skilled workers become too expensive to hire, or builders decide they can’t make a profit on new apartment houses, or millions of mortgage holders are unable to make their payments – well, “Our objective was just to do something reasonable. We never intended to screw up the workings of the market and cause firm closings, unemployment, apartment shortages, or a wave of defaults.” But that’s the result of throwing a monkey wrench into the economy.

Health Reform: Blame Mitt

If – and it is still a big “if – Democrats pass a health bill, that bill will owe as much to former Massachusetts governor Mitt Romney as to Nancy Pelosi and Harry Reid. In fact, with the so-called “public option” out of the Senate health bill, the final product increasingly looks like the failed Massachusetts experiment.  Consider that the final bill will likely include:

  • An individual mandate
  • A weak employer-mandate
  • An Exchange (Connector)
  • Middle-class subsidies
  • Insurance regulation (already in place in Massachusetts before Romney’s reforms)

As to why this will be a disaster for American taxpayers, workers, and patients, I’ve written about it here, and my colleague Michael Cannon has covered it here and here.

Gee, thanks, Mitt.

New HUD Same as Old

U.S. Department of Housing and Urban Development Secretary Shaun Donovan recently gave a speech in New York in which he spoke of a “new direction in housing.” If there’s one constant with cabinet secretaries, it’s that they all promise that their department will be new and improved. The following are a few of Donovan’s lines that deserve comment.

The Federal Housing Administration is providing another critical bridge to economic stability…And with nearly half of first-time buyers using FHA loans, it is clear that the FHA has been central to recovery.

Thanks to his predecessor, Alphonso Jackson, who was “absolutely emphatic about winning back our share of the market,” the FHA’s willingness to pick up the subprime lending slack when the housing bubble burst has opened the door for a potentially huge taxpayer bailout. In fact, the government hasn’t just come to dominate the housing finance market – it practically is the housing finance market. Thus, there are plenty of doubts as to whether the housing “recovery” Donovan speaks of is sustainable without the government crutch.

In crisis comes enormous opportunity for change – as Rahm Emanuel says, ‘a crisis is a terrible thing to waste.’ Ensuring we don’t starts with getting the government back into the business of building and preserving affordable housing. Homeownership is incredibly important. But if this crisis has taught us anything, it’s that it is long past time we had a balanced, comprehensive national housing policy – one that supports homeownership, but also provides affordable rental opportunities, and ensures nobody falls through the cracks.

Like his boss, Donovan’s use of the word “change” is just a euphemism for bigger government. His contention that the government needs to get “back” into affordable housing is laughable. When did it leave?

This crisis has illustrated that only the Federal government has the scale and mechanisms to deal effectively with some of the forces that caused it.

It was the federal government’s “scale and mechanisms” that helped cause the crisis! Only powerful institutions with national “scale” such as the Federal Reserve, Fannie and Freddie, and HUD had the power and potential to create such a nation-wide bubble, bust, and recession. Donovan wants the arsonist to put out the fire.

The Federal government can be a key partner in helping communities foster the kinds of synergies between housing, education, public safety, and health you’ve helped nurture at the neighborhood level.

Words like “synergy”, “nurture”, and “foster” are vacuous bureaucratic rhetoric. They are supposed to imply that the federal government can turn decaying urban centers into utopias with gobs of taxpayer money and bureaucratic meddling. That’s just bunk.

In my recent paper on three decades of scandals, mismanagement, and policy failures at HUD, I show that little has changed at HUD other than the individuals occupying the throne. The history of Shaun Donovan’s tenure is yet to be written, but his speech makes me pessimistic.

Strange Bedfellows?

Jon Walker at FireDogLake says I’ve got the wrong smoking gun:

The smoking gun was a manual put out by the CBO in May…It spelled out exactly how much regulation was “too much” regulation. It explained what was the magical threshold that would cause [CBO director] Doug Elmendorf to declare some private market part of the government budget. Now, I’m angry about this for different reasons than the Cato Institute. I think it is insane that there could be any level of regulation that would make the private market part of the federal budget. Either the money is going through the federal treasury or it is not. I don’t think the the CBO director should have the power to see gray areas on this issue…There is no real logic to it, he simply decided what he thought was enough regulation to make something part of the budget.

To be sure, Walker and I have different ideas when it comes to (1) health care reform.  (Not that you asked, but here are my ideas.)  We likewise disagree that (2) the CBO’s May 27 paper was the smoking gun.  That paper laid out the CBO’s (vague) criteria for including “private” financial transactions in the federal budget (and I duly linked to it in my ‘smoking gun’ post).  But the December 13 memo is the first documented instance of Democrats gaming those criteria.  And I disagree that (3) this was all Elmendorf’s decision, (4) the federal budget should reflect only money that passes through the Treasury (instead of all the money that the feds control), and (5) there’s no logic behind the CBO’s criteria.

All that said, there are a couple of areas where Walker and I agree.  For one, he writes:

More importantly, I don’t think something as important as regulation should be written to trick the CBO. It should be written to produce the best heath care system possible, not the best looking CBO score possible.

Hear, hear.  Yet congressional Democrats have been doing just that, gaming the CBO’s rules to hide the implicit subsidies their legislation would provide to large private insurance companies.

For another, he and I both agree that that legislation is little more than a bailout of large private insurance companies and would be worse than doing nothing.

My question for Walker, and for Howard Dean, and for Markos Moulitsas is: will they join me in calling for the Senate to obtain a CBO cost estimate of the off-budget part of the insurance-industry bailout (i.e., the individual and employer mandates)?  Do they think Senate Majority Leader Harry Reid should at least be up front with his base about what he’s asking them to swallow?  Do they think that We, the People deserve to know the whole truth about this bill?

New Study: Hadley Center and CRU Apparently Cherry-picked Russia’s Climate Data

Yesterday, the Moscow-based Institute of Economic Analysis (IEA), of which I am President, issued a study (in Russian), “How Warming Is Being Made: The Case of Russia.” The report, prepared by IEA director Natalya Pivovarova, suggests that the Hadley Center for Climate Change based at the headquarters of the British Meteorological Office in Exeter (Devon, England) and the Climate Research Unit of the University of East Anglia (CRU) in Norwich (England) apparently cherry-picked Russian climate data.

The IEA report shows that Russian meteorological-station data in the last 130 years did not substantiate the rate of warming on Russian territory suggested by the Hadley Climate Research Unit Temperature (HadCRUT) database, which has now been partially released.

IEA analysts point out that Russian meteorological stations cover most of the country’s territory, while the HadCRUT used data from only 25% of such stations in their calculations. Over 40% of Russian territory was not included in their global temperature calculations even though there was no lack of meteorological stations and observations. The data of stations located in areas not listed in the HadCRUT survey often shows slight cooling or no substantial warming in the second part of the 20th century and the early 21st century.

The HadCRUT database includes specific stations providing shorter observations and incomplete data highlighting the warming process, rather than stations providing longer and uninterrupted observations not demonstrating significant warming. On the whole, HadCRUT specialists use the incomplete findings of meteorological stations far more often than those providing complete observations. IEA analysts found that the climatologists used the data of stations located in large populated centers that are influenced by the “urban heat effect” more frequently than the unbiased data from the stations located in less populated places.

The IEA authors calculated that the scale of actual warming for the Russian territory in 1877-1998 was probably exaggerated by 0.64°C. Since Russia accounts for 12.5% of the world’s land mass, such an exaggeration for Russia alone should have an impact on the IPCC claim that the global temperature in the last century has risen by 0.76°C.

If similar procedures have been used for processing climate data from other national data sources, the impact on the rate of change in global temperature would be considerable.

The IEA report concludes that it is necessary to recalculate all global temperature data in order to assess the real rate of temperature change during the last century. Global temperature data will have to be modified because the calculations used by Copenhagen Conference on Climate Change analysts are based on HadCRUT research.

Don’t You Mean Financial Illiteracy?

According to a story out yesterday, the federal government is starting a new campaign to promote financial literacy among high school students. That’s right, federal politicians, who have given us Fannie, Freddie, the Community Reinvestment Act, endless pork binges, and a national debt surpassing $12 trillion have the absolutely staggering hubris to think that they somehow have what it takes to teach your kids about sound financial practices!

This would actually be pretty funny (for instance, it reminds me of this classically trite PSA) were the complete unshackling of the federal leviathan of which it is a symptom not, potentially, utterly devastating. Unfortunately, we simply can’t afford, either literally or figuratively, to laugh at absurdities or patently unconstitutional overreaching like this anymore.